Bloomberg News

Jet Fuel Gets Olympic Spur as European Refineries Shut

June 22, 2012

Parked Fuel Trucks Wait To Refuel Airplanes

European jet fuel purchases are set to reach the highest levels in more than a year as the London Olympics and Euro 2012 soccer tournament boost travel during the summer months just as refineries in the region are shuttered. Photographer: Matthew Staver/Bloomberg

European jet fuel purchases are set to reach the highest levels in more than a year as the London Olympics and Euro 2012 soccer tournament boost travel during the summer months just as refineries in the region are shuttered.

Imports from the Middle East and Asia will increase to about 1.9 million metric tons this month, according to the median estimate in a Bloomberg News survey of two traders and three brokers. That’s the most since at least March 2011, according to data compiled by Bloomberg. Stockpiles fell to the lowest since 2008, PJK International data show.

The rising shipments underscore the growing dependence on imports for European airlines such as British Airways owner International Consolidated Airlines Group SA (IAG) after the closing of six refineries this year. That’s benefiting producers such as India’s Reliance Industries Ltd. (RIL), owner of the world’s largest refining complex, and Kuwait Petroleum Corp.

“We’ve got the Olympics and we’ve got quite a busy summer of tourism and sport expected,” Roy Jordan, an analyst at Facts Global Energy Inc. in London, said in a telephone interview. “We’re normally structurally tight on jet fuel in Europe and the fact that we’ve had so much refinery capacity down is one of the factors that’s left a gap” in supply, he said.

The region’s debt crisis and higher Brent crude prices earlier this year sapped fuel demand and eroded processing profits, pushing Petroplus Holdings AG, once Europe’s largest independent refiner, to file for insolvency. The company’s Coryton refinery in the U.K. started to shut down on June 6 after administrators failed to find a buyer.

Trend to Continue

About 1.4 million tons of jet fuel have been booked to sail to Europe so far this month, according to reports from four shipbrokers including Delhi-based Interocean Shipping. The cargoes are from India, Kuwait, the United Arab Emirates, Saudi Arabia and South Korea, the reports showed.

“The trend for increased jet fuel imports will continue,” Tony Astor, former head of fuel strategy for BAA Airports Plc and founder of Astor Consulting, said June 19 by phone from Dorking, England. “You’ll see more jet fuel imported, partly because of the two vast oil refineries in India and also because of global sourcing of aviation fuel by oil companies,” he said. Reliance’s twin plants in Jamnagar, India, comprise the world’s largest refining site.

The European Organization for the Safety of Air Navigation, or Eurocontrol, forecasts flights to, from and within the U.K. will increase 1 percent to 5,780 a day in August because of the Olympics. Without the games, air traffic would drop 1 percent.

‘Short-Term Spike’

‘It’s a short-term spike in what would otherwise be a weak summer,” David Marsh, head of forecasting and traffic analysis at Eurocontrol, said by phone from Brussels June 7.

The London Olympics will attract more than 320,000 overseas visitors, according to national tourism agency VisitBritain, citing a study conducted by Oxford Economics. Brussels, Amsterdam and Paris are also seeing an increase in travel during this period, Madrid-based Amadeus and Barcelona-based Forward Data said in a report in March.

The Euro 2012 is estimated to cause a 12 percent rise in flights to and from Poland in June, while Ukraine journeys will jump 20 percent versus the previous year, Eurocontrol said.

Airline profits are “anemic” because of high oil prices, Tony Tyler, the chief executive officer of the International Air Transport Association, said in a June 11 speech in Beijing. The industry’s fuel bill is forecast to reach $207 billion this year, accounting for a third of costs, he said.

Single-Biggest Cost

“Fuel is our biggest single cost,” British Airways spokeswoman Nicola Pearson said by e-mail. “We work with a number of suppliers to ensure we get the best value for money at all times.”

European air passenger traffic rose 6.8 percent in the first four months of 2012, from the same period a year earlier, according to IATA data on May 30. Europe accounts for 28.3 percent, the second largest share, of global passenger traffic.

“We are optimistic on global jet fuel demand, at least for the coming year,” David Wech, head of research at Vienna-based consultant JBC Energy GmbH, said in a June 15 note. The consultant forecasts aviation fuel use will grow by almost 100,000 barrels a day in 2013 as economic activity recovers.

Refinery Acquisition

Delta Air Lines Inc. (DAL:US) broke with industry norms of not owning fuel assets by announcing the purchase in April of the 185,000 barrel-a-day Trainer oil refinery near Philadelphia from ConocoPhillips in a bid to curb its reliance on outside suppliers and better manage price risks.

In Europe, about 1.1 million barrels a day of refining capacity, or about 7 percent of the region’s total, has been permanently shut since early 2011 because of declining profits.

Jet fuel demand fell 3.6 percent in April from a year earlier to 1.16 million barrels a day in European member countries of the Organization for Economic Cooperation and Development, the International Energy Agency said on June 13.

Stockpiles of jet fuel held in the Amsterdam-Rotterdam- Antwerp oil hub fell to 297,000 tons in the week to yesterday, the lowest since July 2008, according to PJK International BV, a researcher based in the Netherlands.

The surge in imports may depress jet fuel differentials, which have dropped 27 percent this month, according to KBC Energy Economics. Cargoes were yesterday at $46.50 a ton more than benchmark gasoil on the ICE Futures Europe exchange in London, according to data compiled by Bloomberg. That’s down from a premium of $69.25 on May 31. Gasoil slid $11, or 1.3 percent, to $811 a ton on ICE today.

“Whenever there is more demand, some material starts to move from Asia, which puts pressure on prices,” Ehsan Ul-Haq, senior market consultant at KBC, said by phone from Walton-on- Thames, England. “Jet fuel demand has been relatively strong because intraregional travel is doing quite fine. Some airlines might be stockpiling ahead of these events.”

The following table lists the monthly volume of shipments to Europe since March 2011 based on shipbroker reports and surveys of traders and brokers:

MONTH     VOLUME (tons)
----------------------------------------------------------------
2012
June      1.9 million
May       1.4 million
April     1.8 million
March     1.1 million
February  1.3 million
January   0.8 million

2011
December  0.8 million
November  1.5 million
October   1.2 million
September 0.9 million
August    1.3 million
July      1.5 million
June      1.3 million
May       1.6 million
April     1.2 million
March     1.2 million

To contact the reporters on this story: Lananh Nguyen in London at lnguyen35@bloomberg.net Rob Sheridan in London at rsheridan6@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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